| Budget Amount *help |
¥1,100,000 (Direct Cost: ¥1,100,000)
Fiscal Year 2001: ¥500,000 (Direct Cost: ¥500,000)
Fiscal Year 2000: ¥600,000 (Direct Cost: ¥600,000)
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| Research Abstract |
It is generally understood that the main bank has played a major role in Japanese corporate finance as a lender to firms, a shareholder, and a source of directors. In recent years, however, changes have been observed in the relationship between firms and their main banks.
This paper contains an empirical analysis of the agency cost reduction effect, the basic function of the main bank. Its purpose is to uncover the changes that have occurred over time in the main bank relationship and the factors behind them. Our results indicate that even when the capital markets were regulated, it is not clear that the main bank might play the role of producing information about borrowing firms which had the effect of reducing their agency costs. After the capital markets had been liberalized, however, no clear agency cost reduction effect was observed. This supports the view that tightly regulated capital markets are necessary for main banks to play their role effectively, but there is also an undeni
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able possibility that banks exploit firms that have no resort to other means of fund-raising.
Our analysis indicates that behind the changes observed were a weakening of the main bank relationships of quality firms that were able, thanks to the liberalization of capital markets, to issue bonds, and a corresponding maintenance and strengthening of the main bank relationship among less creditworthy firms.
As reforms to the financial system continue, it is likely that greater numbers of firms will weaken their main bank relationships. It is therefore difficult to discover a raison d'etre for the main bank in absorbing personal savings and chaneling it to large firms. In the future, it may be only smaller firms who do not disclose information that require close relationships with a main bank. To adapt to these changes in the financial environment, it is urgent that banks wean themselves from their current obsession with collateral and strengthen their ability to evaluate technology and business feasibility. Less
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